because culture matters most

Six Questions Every Startup Must Answer

I just finished reading one of the most pragmatic and thoughtful books I’ve ever read about building companies (and I’ve read quite a few). It’s called The Advantage: Why Organizational Health Trumps Everything Else in Business. In it, author Patrick Lencioni describes an organization as healthy “when it’s whole, consistent and complete; when its management, operations, strategy and culture fit together and make sense.” Healthy organizations have “minimal politics and confusion, high degrees of morale and productivity, and very low turnover among good employees.” He points out that most organizations are way too focused on being smart, and not nearly focused enough on being healthy. In his words, Organizational Health is “more than a side dish or flavor enhancer for the real meat and potatoes of business, it is the very plate on which the meat and potatoes sit.”

I couldn’t agree more. Think about it. You could have the smartest engineers, marketers and strategists in the world on your team, but if you’re not getting along, moving in the same direction, being honest with each other and rigorously debating the best courses of action, you’re not likely to be successful. By contrast, a highly-motivated, aligned team that’s open and direct with each other, engages in healthy conflict and feedback, and is clear and united in its goals will maximize its chances of success by consistently learning and iterating toward its goals.

In an article I wrote for GigaOm about The Values-Driven Startup, I made the case that “when we operate according to our core values and principles, in pursuit of a vision for the future that inspires us, we maximize our individual and collective well-being.” The steps toward Organizational Health outlined in the book can help startup leaders put this idea into practice.

The Organizational Health Model

According to Lencioni, the four ‘Disciplines’ required to create Organizational Health are

Discipline 1: Build a Cohesive Leadership Team

Discipline 2: Create Clarity

Discipline 3: Over-Communicate Clarity

Discipline 4: Reinforce Clarity

Notice that clarity is mentioned in three out of four of the disciplines. In most startups, a host of symptoms (gossiping, infighting, team silos, inability to ship, etc.) can actually be traced back to the lack of clarity from the leadership team down to the newest hire. The first step to creating clarity is to answer six critical questions.

Creating Clarity: The Six Questions Every Startup Must Answer

Why do we exist?

How do we behave?

What do we do?

How will we succeed?

What is most important, right now?

Who must do what?

In a presentation I gave recently on How to Build a Values-Driven Startup (slides here) , I shared that a methodology for success that encompasses crafting a vision that truly inspires you, and then clarifying and creating alignment of the Vision, Values, Strategy, Objectives, Behaviors, Organizational Practices (particularly hiring, performance management, promoting and firing) and Metrics. These six questions dovetail nicely with this framework, from the Vision through the Behaviors.

1. Why do we exist?

While it would seem like this should be obvious, I’ve seen a number of startups where the founders themselves can’t answer this question clearly, and even more startups where the answers are not consistent across team members. Even when the team is clear about the ‘Why’, often it’s not lofty, ambitious or human enough to really galvanize and inspire the team over the long haul. The ‘Why’ question typically leads to a discussion of the company’s long-term vision (‘when all is said and done, how will we know when we’ve won?’) I believe that creating an inspiring vision for the company is one of the most critical success factors, because it creates a north star to guide the team moving in the same direction and helps keep people motivated through tough times. I’ve written in the past about How to Create an Inspiring Vision, and the importance of thinking about the impact you want your company to have on people’s lives.

In former P&G Global Marketing Officer Jim Stengel’s excellent book, Grow, he explains that the fastest-growing, most enduring businesses are those with shared ideals of improving people’s lives. He cites research he’s done over the last 10 years, which shows a clear cause-and-effect relationship between financial performance and “fundamental human emotions, hopes, values and greater purposes.”

Nailing down an answer to this question that’s succinct, compelling and understood by everyone inside and outside the company is the first step to creating clarity throughout the company.

2. How do we behave?

While more and more startups are realizing the benefit of defining their values early on, too often they fail to take the step of defining the behaviors that embody those values. This question invites startup leaders to define the rubber-meets-the-road behaviors that are expected from team members day-to-day. One of the most insightful parts of Netflix’s famous culture deck is on slides 8 – 17 where they lay out each of their values and the behaviors that they expect from employees with respect to each value. These behaviors form the cultural basis for hiring, promotion and firing decisions at Netflix, and give employees a clear understanding of what’s expected of them.

3. What do we do?

This is a question that most startups do a decent job of – outlining the company’s core offerings, activities and target market. What’s the product, what problems does it solve, and into which market will it fit? (more on Product-Market fit here) This is not a flowery marketing document, just a simple, straightforward business definition. Lean Startup practitioners have done a phenomenal job outlining processes to help entrepreneurs define and refine their answers to this question.

4. How will we succeed?

This question invites a definition of the company’s strategy, or ‘strategic anchors.’ Rather than come up with an overly complicated plan that will likely change within a few months (if not weeks), it’s most helpful to outline the 2 – 4 critical success factors. Patrick Lencioni recommends reverse-engineering your strategic anchors by listing out all the activities you’re already doing on a whiteboard, and seeing what themes emerge as the strategic anchors. (This process has been called Mapping Activity Systems by strategy guru Michael Porter). When all team members understand the key strategic anchors, decision-making and prioritization become much easier, and the chances of people focusing on the right things increases dramatically. Of course, the strategic anchors may change as the company learns, the competitive landscape shifts or the market conditions evolve – the key is that you change them explicitly and make sure to communicate the change to all team members.

(see example below from every startups’ favorite furniture store)

5. What is Most Important, Right Now?

Most startups I’ve worked with have too many ‘top priorities’. Having too many priorities can cause organizational A.D.D. and create silos between departments. By contrast, focusing all of a startup’s scarce resources on the single most important priority is one of the key differentiators between startups that succeed and fail. The Startup Genome Project found ‘premature scaling’ to be the most common cause of startup failure – in essence too many startups try to simultaneously focus on getting the product right and scaling the business. “Every organization, if it wants to create a sense of alignment and focus, must have a single top priority within a given period of time.” The author recommends that startups define one thematic goal as a rallying cry for the company per quarter. He defines a thematic goal as:

Singular – it truly is one thing

Qualitative – it should not have specific metrics, those come later

Temporary – it can be achieved within a clear time boundary

Shared across the leadership team – all execs must take responsibility

The best way to come up with the thematic goal is to ask: “If we accomplish only one thing during the quarter, what would it be?”

The thematic goal must then be further clarified by defining 3 – 5 objectives, or OKRs, that are required to achieve the thematic goal.

6. Who Must Do What?

Answering this seemingly simple question can go a long way to resolving conflict and confusion in a startup. While there’s a temptation to have everyone wearing every hat early on, too often lack of role definition can lead to frustration and balls getting dropped. Also, I’ve seen many startups either wait too long to assign clear roles and titles to people, or haphazardly assign titles that are way beyond an individual’s experience and capabilities. This often comes back to bite them as the team grows and the startup leaders find themselves having to justify title and compensation to new employees who have vastly more experience than current team members in similar roles. It’s also a lot more challenging to take someone’s title away or demote them once you’ve granted it – better to get people in the right roles and at the right levels from the start.

Once the team grows and team leaders have people they’re managing, lack of role clarity can become especially damaging, as team members struggle to understand whose authority to listen to when they get conflicting priorities from different managers. Even if titles are clear, often the actual responsibilities of each team member are not. One simple exercise you can do is to have everyone on the team write down what they think their job description is. You may be surprised to find that people’s descriptions are overlapping, and the ‘swim lanes’ aren’t as clear as you thought.

Summary

Building a product that profitably meets the need of your target market is hard enough. If you don’t develop a healthy organization by creating clarity around the key defining questions, your chances of learning fast enough to find product-market fit and build a successful, scalable business are miniscule. The good news is that while each product, business model and market is unique, because organizations are made up of human beings, there are some relatively consistent questions and processes you can use to increase the health of almost any team. Invest the time to answer these six questions for your startup; it may be your best investment yet.